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F I S C A L I M P A C T R E P O R T

SPONSOR B. Lujan

ORIGINAL DATE

LAST UPDATED

1/21/07

HB 203

SHORT TITLE

Leased Vehicle Surcharge Exemptions

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($1,500.0)

($1,500.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Blue Ribbon Tax Reform Report 2003

Response Received

Department of Transportation (DOT)

SUMMARY

Synopsis of Bill

House Bill 203 exempts cars rented as replacements from the leased vehicle surcharge. The cur-

rent law does not make a distinction between short term rentals that are for pleas-

ure/vacation/business and those rented because of an accident or malfunction. HB203 would re-

quire a person renting a vehicle to sign a statement that the rental is a replacement for a vehicle

that is being repaired, serviced or replaced. The exemption would apply to a dealer or repair fa-

cility that leases a car on behalf of the client. HB 203 is similar to a proposal considered by the

2003 Blue Ribbon Tax Reform Commission (BRTRC).

The effective date is July 1, 2007.

House Bill 203 – Page

2

FISCAL IMPLICATIONS

The BRTRC report estimated that the exempting replacement rentals paid for by insurance com-

panies would cost the general fund $900 thousand. HB 203’s more expansive definition in-

creases the impact on the general fund to $1.5 million.

SIGNIFICANT ISSUES

The administration of collecting and validating statements from individuals may be onerous if

the burden lies with the rental agency. The Department of Transportation describes the pitfalls of

this type of program:

Experience with other similar provisions of law relating to a purchasers’ statement regarding

the intended tax-exempt use of a product has proven to be subject to substantial abuse. There

would be little or no possibility of compliance or audit review, and leasing companies might

well suggest to the customer how they might save a few dollars by signing a statement.

ADMINISTRATIVE IMPLICATIONS

Taxation and Revenue Department would be required to verify and validate the returns but there

is no provision in the bill for the rental car company to retain and share the statements with TRD.

It may also prove to be to cumbersome to audit as well as costly compared to the amount of the

credit.

OTHER SUBSTANTIVE ISSUES

DOT provided this summary of BRTRC:

•

Summary of Blue Ribbon Commission Testimony (2003):

The industry suggested that the Leased Vehicle Surcharge may impose an undue burden on state

residents. The Leased Vehicle Surcharge was initially imposed with the thought of exporting the

tax burden to tourists, who were assumed to be the predominate users of rental cars. In the case

of “replacement car rentals" (rentals to replace a vehicle while it is being repaired), state resi-

dents are generally the users of those rental cars. Insurance companies cover the cost of re-

placement rentals at an agreed upon daily price, but the renter of the vehicle is generally

required to pay the Leased Vehicle Surcharge. Since replacement rentals may often be re-

quired for an extended period of time, the surcharge may impose an annoying tax burden on

residents who expected their insurance would cover the costs. Industry representatives report that

7 states currently exempt “replacement car rentals" from similar taxes or surcharges – Maryland,

Oklahoma, Indiana, Louisiana, Rhode Island, Utah, and Wisconsin

NF/nt